4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 86.1933
The EUR/USD currency pair continued to trade very calmly on the 4-hour timeframe on Thursday. Although the increase in the quotes of the euro/dollar pair continues almost non-stop in the last 12 trading days, the volatility leaves much to be desired. For example, on Wednesday, it was 40 points. On Thursday - most of the day, the pair was in the 30-point range. On the one hand, this is even good, since there are no sharp turns and movements like "swing". On the other hand, the question arises, why did the markets sharply reduce their activity? In general, at this time, our forecast for the depreciation of the US dollar in 2021 continues to be fulfilled. We still believe that the factor of saturation of the US economy with dollars will continue to harm the dollar itself. Therefore, we continue to expect further growth in the quotes of the euro/dollar pair. However, by and large, this week traders only once went beyond the framework of low-volatility trading. When the inflation report was published in the United States, which only showed even more strongly that the fears of traders and investors are not in vain and are not groundless. Inflation is accelerating and it made a huge jump up in March. It is possible that in the following months, it will continue to accelerate, which primarily poses threats to investors who will continue to look for ways to protect themselves from the depreciation of the dollar. Against the backdrop of all this, the comments of Jerome Powell, who gave a speech on Wednesday, were very important. However, looking ahead a little, we can immediately note that the head of the Fed did not tell the markets anything new and important. Let's analyze his speech in more detail.
The main thesis that Powell voiced is as follows: The Fed will begin to scale back its quantitative easing program long before it starts raising its key rate. What does this mean? This means that the Fed assumes that as inflation rises, the economy will need less stimulus. There is a huge backlog of demand in the States. Recall that according to various estimates, about 1.5 trillion dollars were accumulated by Americans during the pandemic. They were added to about $ 0.5 trillion, which was "dropped from a helicopter" under the latest stimulus program from the US government. All this money is expected to start flowing into the markets, accelerating both the economy and inflation. And since it is inflation that most worries investors and traders, the question arises: how will the Fed counteract its growth if it goes beyond the target trajectory? As Powell's performance showed, nothing. Powell made it clear: "We will begin to reduce asset purchases when we make significant progress in achieving the economic growth goals we announced last December." This means that even a reduction in the quantitative stimulus program from the Fed should not be expected in the near future. And this, in turn, means that if inflation rises to 3.0% in April, the Fed will remain inactive. At least for now, they don't plan to do anything. Last year, Powell said that the Fed is moving away from the principle of targeting inflation and allowing it to go above 2.0% in the medium term to compensate for those periods when it was below the target level. Naturally, this is bad news for the US currency. The money supply is inflated, Americans will spend more and more money from month to month, as vaccination in the United States is going at a good pace and the population is encouraged by the idea that the pandemic is passing and is beginning to behave more actively. Regarding the key rate, Powell also made it clear that most US federal bank managers do not expect an increase before the end of 2023. "The rate hike will take place when the States achieve the maximum level of employment, and the economy fully returns to the pre-crisis growth trajectory," Powell said.
At the same time, ECB Chief Christine Lagarde said on Wednesday at the Breakingviews event organized by Reuters that the EU economy now relies on two crutches in the form of fiscal stimulus and monetary stimulus. Without these two "crutches", the economy may collapse again. Recall that in the first quarter of 2020, the EU economy collapsed by 3.8%, in the second – by 11.6%, in the third – recovered by 12.5%, but in the fourth again showed a decline – by 0.7%. According to experts, in the first quarter of 2021, a new drop of 1.2% will be recorded. Thus, indeed, it is now possible to compare the EU economy with a disabled person who already feels quite bad, and without incentives at all can return to a coma. However, we have already said several times that the European economy feels much worse than the American one.
Thus, during the current week, there were no global changes in the fundamental plan for the dollar and the euro. Although the US economy is doing much better, it is the European currency that can grow, since much less new money is being poured into the EU economy than into the US. From our point of view, this factor will remain key throughout 2021. Perhaps something will change in the summer when the European Union finally begins to distribute among the member countries of the Alliance the 750 billion euros from the reconstruction fund. But it will be in the summer. When it starts to be distributed, then it will be possible to talk about it. In the meantime, it is much more likely that America will approve a new $ 2.6 trillion stimulus package.
In the coming days, the euro/dollar pair may slightly adjust, as the almost recoilless growth has been going on for almost two weeks. However, we would not count on the resumption of the downward trend right now.
The volatility of the euro/dollar currency pair as of April 16 is 50 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1921 and 1.2021. The upward reversal of the Heiken Ashi indicator signals a possible resumption of the upward movement.
Nearest support levels:
S1 – 1.1963
S2 – 1.1902
S3 – 1.1841
Nearest resistance levels:
R1 – 1.2024
R2 – 1.2085
R3 – 1.2146
Trading recommendations:
The EUR/USD pair maintains an upward trend. Thus, today it is recommended to open new long positions with targets of 1.2024 and 1.2085 in the event of a reversal of the Heiken Ashi indicator up. It is recommended to consider sell orders if the pair is fixed back below the moving average line with targets of 1.1841 and 1.1780.
